In this contentious presidential election year, income inequality has become a hot topic. There are two starkly different realities in America informing the policy debate and it’s clearer than ever that, when it comes to financial regulation, where you sit depends on where you stand.
Around half of Americans do not have the financial security that is so intertwined with our definition of the American dream. Last year, the Federal Reserve found that 47 percent of American households could not cover a $400 emergency expense, or they would have to sell something or borrow the money to pay for it.
The reality for the financially insecure is vastly different than for those who can afford a $400 unexpected expense. Even more troubling, it seems there is an inability for the financially secure to understand the other side’s reality. This causes problems for our democracy when debating national priorities and government policy for the simple reason that most of those who make policy – especially in a place like Washington, D.C. – do not understand the daily reality of those who lack financial security.
While the Consumer Financial Protection Bureau (CFPB) may believe it is protecting consumers, a new survey released this week by two respected Washington polling firms, Global Strategy Group (D) and the Tarrance Group (R), is very instructive on this issue. The survey examines the differences in opinions of those who have used payday loans compared to voters.
It’s clear from this survey that most voters live a different financial world than payday loan borrowers, which makes regulating payday loans particularly challenging.
Despite what the CFPB claims, the people who have used payday products in the past are much more favorable toward payday products than voters who do not have the same personal experience. The survey found that most payday borrowers believe that payday loans can be a sensible choice, appreciate the option it provides, that they are fairly priced and that they fully understood the loan terms.
Interestingly, the survey found that 72 percent of payday borrowers felt they received better treatment from their payday lender than from a bank or credit card company.
Government regulation is actually one area where voters expressed some understanding for those without financial security. The survey found that that 58 percent of voters expressed concern for reducing the access to credit of the nearly one quarter of Americans who do not qualify for credit from banks, credit unions or credit cards. Another question found 60 percent of voters were concerned that regulation could cause large numbers of payday lenders to close.
If they were to close, many individuals – three in four borrowers surveyed – who rely on payday loans will not have other options available to them. This is in stark contrast to the 49 percent of voters who reported being able to rely on a friend or relative to provide them with a loan in a short-term financial crisis.
The United States Hispanic Chamber of Commerce (USHCC), which I represent, takes special interest in the issues facing consumers and small businesses today, including access to credit. The USHCC represents an estimated 4.1 million Hispanic-owned businesses across the country, which create jobs and contribute in excess of $661 billion to the American economy.
Hispanic consumers and businesses have been significantly impacted by the tightening of credit in the U.S. Access to credit drives consumer spending, and is absolutely essential to our members and their businesses. Indeed, a large portion of small-dollar loans are used to pay bills at small businesses, and money spent at these businesses stays within the communities, boosting local economies.
As you can see from this survey, starkly different financial realities divide America and most voters do in fact inhabit a different America than most payday loan borrowers. Either way, they are both equally American. This reality presents a challenge for government policymakers who may not have a sufficient understanding of daily realities for the financial insecure. In the case of the CFPB and its expected payday loan regulations, the bureau must be able to balance access to credit with consumer protection.
As the CFPB appears to be moving forward with payday loan and other small-dollar lending industry regulations, they must understand the real world impact of them. Consumer protection is certainly of the utmost importance, but regulation in its name can be very harmful, especially without fully understanding the daily reality for millions of Americans who cannot make ends meet.